GM shares hit after key board member bolts

SAN FRANCISCO (MarketWatch) -- General Motors Corp. shares suffered their biggest one-day loss of the year Friday as a rift between company management and Kirk Kerkorian, its biggest individual shareholder, publicly ruptured.

The bomb dropped in a regulatory filing from Kerkorian's Tracinda Corp. announcing that Jerome York, Kerkorian's adviser and close ally in his efforts to shake up GM, had resigned from the automaker's board.

At the same time, Tracinda said it was putting on hold plans announced just last week to expand its stake in the company to 12%. Kerkorian, through Tracinda, already owns 9.9% of GM's stock.

GM shares, part of the Dow Jones Industrial Average, dropped 6% on the news, closing at $31.05 after bouncing off a session low of $30.38.

York's sudden exit comes just two days after GM
GM, +0.11%
ended nearly three months of talks concerning a possible strategic alliance with Nissan-Renault.

Analysts said the move signals a tactical change in Kerkorian's ongoing effort to accelerate GM's cost cutting and turn around its shrinking market share.

Kerkorian had pushed hard to get GM to consider an outside alliance. He muscled York, a former Chrysler executive, into GM's board room in February to ensure the process got underway despite widespread skepticism among the company's top brass.

Talks between GM and Nissan-Renault, the Japanese-French alliance led by automotive turnaround expert Carlos Ghosn, reached an impasse over GM's insistence that it be handsomely compensated for what it would bring to such a linkage. See full story.

In a resignation letter accompanying Tracinda's filing, York roasted the board for a lack of independence in defending shareholders.

"I have not found an environment in the board room that is very receptive to probing much beyond the materials provided by management ... I can understand why that environment exists, but in the sense that all parties' interests are fully aligned around long term shareholder value creation, that environment has been a puzzle to me," he wrote.

GM spokesman Brian Akre fired back: "Eleven of our 12 directors are independent. They all have impressive backgrounds in business. To suggest that they do not take their responsibility to shareholders seriously, that they do not aggressively challenge and question management, is absolutely absurd."

GM issued a separate statement Friday explaining that the company's decision to break off the Nissan-Renault talks was unanimously backed by its board members. The alliance, GM said, would "substantially disadvantage" its shareholders as potential aggregate synergies were "highly skewed" to favor Nissan and Renault.

GM Chief Executive Officer Rick Wagoner, when asked on a conference call on Wednesday, declined to elaborate on whether York was part of that final vote.

Few industry analysts were surprised by the outcome of the talks, given Wagoner's determination to turn things around at GM on his own terms -- an effort now bearing fruit. GM shares are up 70% so far this year, by far the best performer on the Dow Jones Industrial Average

"GM has had such spectacular success this year that maybe they should be left alone to complete their turnaround without more input from Kerkorian," Dave Healey, analyst at Burnham Securities said.

GM, under Wagoner's restructuring program, has seen its fortunes reverse from a loss in 2005 of $6 a share loss to what is shaping up to be a $4 per-share profit in 2006, with likely further improvement in 2007, Healey said.

"Right now, I don't think they need further intervention from Kerkorian," he added.

That doesn't mean Kerkorian is retreating to the wings -- not with $1.7 billion tied up in the company.

"We believe that this move signals that Tracinda will become more activist," Deutsche Bank securities analyst Rod Lache wrote in a research note, adding he doesn't believe Tracinda plans to give up or liquidate its position.

"Ultimately, this could lead to a proxy fight for control," Lache wrote. "In this case, Tracinda may feel that they can be more active in communicating their views on the company strategy with York off the board."

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